Technologically Clueless Grandstanding Senator Calls For US To Ban Bitcoin

from the because-you're-an-idiot dept

Nearly three years ago, Senator Chuck Schumer claimed that Bitcoin was money laundering -- which is, of course, ridiculous. For years, though, there have been plenty of concerns within the Bitcoin community over when and how there would be some sort of moral panic concerning Bitcoin, leading to some sort of excessive regulation. In the past year or so, however, the government has been surprisingly restrained in dealing with Bitcoin, and really seemed to be trying hard to at least appear to understand the concept before running off half-cocked. However, when you're dealing with politicians, it's really only a matter of time until the insanity hits. And with all of this week's attention on the Mt. Gox debacle (in case you've been under a rock, the site, which was an early popular Bitcoin exchange, shut down after more massive problems, including possible theft of huge amounts of Bitcoin, were revealed), it should hardly be a surprise that a politician would launch an almost totally clueless attack on Bitcoin.

To do the honors, I present Senator Joe Manchin, who (like plenty of Senators) does appear to get a fair bit of campaign money from financial services and banking institutions. He's now calling for Bitcoin to be banned in the US with a letter to Treasury Secretary Jack Lew and Fed Chair Janet Yellen. But what's incredible in his letter is how... simply wrong he is about nearly everything regarding the cryptocurrency.

I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.

First off, Bitcoin is not unregulated. Today's regulations concerning currency still apply to Bitcoin. Yes, there are elements that appear to be less regulated (or make it easier to skirt regulations) but to say it's "unregulated" is simply wrong. The fact that it has allowed people to participate in illicit activity could easily apply to just about any financial instrument from cash to debt to equity to whatever the hell Wall Street is cooking up. The idea that it's "disruptive to our economy" also seems... wrong. It has the potential to be disruptive in a good way (providing all sorts of benefits to today's payment systems) but Bitcoin is still tiny. It has no real impact on the economy today.

Due to Bitcoin's anonymity, the virtual market has been extremely susceptible to hackers and scam artists stealing millions from Bitcoins users.

Not even close to true. The "susceptible to hackers and scam artists" has nothing to do with the anonymity bit. For the most part, it's had to do with very poorly run businesses (like Mt.Gox) that appeared to be somewhat clueless about how to securely handle Bitcoin. This has been detailed repeatedly. In fact, the death of Mt. Gox should actually be quite a good thing for the Bitcoin community and ecosystem, because getting rid of the weak players will increase the safety and confidence in Bitcoin.

Anonymity combined with Bitcoin's ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions.

Replace Bitcoin with cash and... well, there you go.

Bitcoin has also become a haven for individuals to buy black market items.

The amount of US cash used to buy black market items makes Bitcoin barely a blip on the radar. But we don't ban cash.

I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.

First of all, if this is a risk that believers in Bitcoin want to take, why should the US block that? Besides there are plenty of investments that turn out to be valueless. Does Senator Manchin wish to ban all of those as well? Does he want to ban companies going bankrupt? Sometimes investments don't work out.

Two days ago, this exchange took its website down and is no longer even accessible. This was not a unique event; news of plummeting or skyrocketing Bitcoin prices is almost a weekly occurrence.

Actually, no, it's not. Let's look at the market price of Bitcoin for the past year or so, from Blockchain.info:

Is it somewhat volatile? Sure. Are prices "plummeting or skyrocketing" as an "almost weekly occurrence"? Not even close. I'm sure someone with more time could easily find stocks that show plenty of volatility as well. Why isn't Manchin looking to ban such stocks as well?

In addition, its deflationary trends ensure that only speculators, such as so-called “Bitcoin miners,” will benefit from possessing the virtual currency.

This is a key point often raised against Bitcoin, but it seems to assume that pricing can't compensate for that, and it's not clear that's the case. Yes, when something is volatile, speculators are going to prevail, but that doesn't always need to be the case.

There is no doubt average American consumers stand to lose by transacting in Bitcoin. As of December 2013, the Consumer Price Index (CPI) shows 1.3% inflation, while a recent media report indicated Bitcoin CPI has 98% deflation. In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.

Where to start? Again, I'm sure we could find a stock or other investment opportunity that has dropped in value over the last month. But picking a arbitrarily (and ridiculously short) time frame in which to make this argument is just... well, stupid. It makes no sense. We could easily point to the inflation of Bitcoin over the past year and suggest that based on Mahcnin's own logic that Bitcoin is a good investment. Both arguments are equally stupid.

Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.

I'm curious. When Wall Street put the economy in real threat, including putting tons of "hard working Americans" at risk thanks to leveraging up the money supply to insane rates, did Joe Manchin (then a Governor) ask the US government to fix these issues and ban questionable banking practices? Hell no. Instead, he supported bailing out the banks. Yet, now, suddenly, he's worried about this tiny little corner of a currency he doesn't even understand?

Even more ridiculous, he's now claiming that he's only focused on Bitcoin, and his calls for regulation don't even apply to other cryptocurrencies, despite having many of the same features which Manchin doesn't even seem to understand in the first place.

This is nothing more than grandstanding anyway, but these issues are going to keep coming up, and it's important to point out when the people making these claims appear to not even remotely understand what they're talking about. Manchin's full letter is posted below in case you want to dig in deeper on the nuttiness.

I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.

By way of background, Bitcoin is a crypto-currency that has gained notoriety in recent months due to its rising exchange value and relation to illegal transactions. Each Bitcoin is defined by a public address and a private key, thus Bitcoin is not only a token of value but also a method for transferring that value. It also means that Bitcoin provides a unique digital fingerprint, which allows for anonymous and irreversible transactions.

The very features that make Bitcoin attractive to some also attract criminals who are able to disguise their actions from law enforcement. Due to Bitcoin’s anonymity, the virtual market has been extremely susceptible to hackers and scam artists stealing millions from Bitcoins users. Anonymity combined with Bitcoin’s ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions.

Bitcoin has also become a haven for individuals to buy black market items. Individuals are able to anonymously purchase items such as drugs and weapons illegally. I have already written to regulators once on the now-closed Silkroad, which operated for years in supplying drugs and other black market items to criminals, thanks in large part to the creation of Bitcoin.

That is why more than a handful of countries, and their banking systems, have cautioned against the use of Bitcoin. Indeed, it has been banned in two different countries—Thailand and China—and South Korea stated that it will not recognize Bitcoin as a legitimate currency. Several other countries, including the European Union, have issued warnings to Bitcoin users as their respective governments consider options for regulating or banning its use entirely. While it is disappointing that the world leader and epicenter of the banking industry will only follow suit instead of making policy, it is high time that the United States heed our allies’ warnings. I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.

Our foreign counterparts have already understood the wide range of problems even with Bitcoin’s legitimate uses – from its significant price fluctuations to its deflationary nature. Just last week, Bitcoin prices plunged after the currency’s major exchange, Mt. Gox, experienced technical issues. Two days ago, this exchange took its website down and is no longer even accessible. This was not a unique event; news of plummeting or skyrocketing Bitcoin prices is almost a weekly occurrence. In addition, its deflationary trends ensure that only speculators, such as so-called “Bitcoin miners,” will benefit from possessing the virtual currency. There is no doubt average American consumers stand to lose by transacting in Bitcoin. As of December 2013, the Consumer Price Index (CPI) shows 1.3% inflation, while a recent media report indicated Bitcoin CPI has 98% deflation. In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.

The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use. The Senate Homeland Security and Governmental Affairs Committee issued a report just this month stating, “There is widespread concern about the Bitcoin system’s possible impact on national currencies, its potential for criminal misuse, and the implications of its use for taxation.” Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.

Reader Comments

Apparently big banks are the only institutions that are allowed to launder money without penalties. In fairness to the banks, they do seem to do it quite well. Their skill is based on long practice with huge amounts of money. We can't allow anyone to cut into that lucrative business. They probably should get another subsidy.

Re:

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Imagine if they would've said this about the Internet:

"Ban the Internet! It will enable piracy, drug selling, and 1-click porn access for our kids...and the upside is dubious at best!"--------------------What do you mean "would have?" They are STILL saying all that about the internet TODAY!

Re:

No, their brains are in gear, it's just that it's the gear called greed. In this gear, reason and logic is disengaged, and they only listen to people willing to pay them big sums of money to run their mouths in overdrive to benefit themselves at the expense of everyone else.

(And you have to love this Manchin "person" attempting to lecture the Fed, who have actually been paying attention to bitcoin all along, as he'd know if he'd followed the news - the Fed interest has been well reported).

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Don't go there, don't even think it or they will hear your neurons rattling. The ultimate aim is to make all transactions electronic ergo traceable and stored for ever by our favorite agencies. Because children. Because terrorists.

Even more ridiculous, he's now claiming that he's only focused on Bitcoin, and his calls for regulation don't even apply to other cryptocurrencies, despite having many of the same features which Manchin doesn't even seem to understand in the first place.

Ha! I bet he didn't even know they existed, and the question took him completely off-guard.

I can't wait for the US gov't to find out there are dozens and dozens of cryptocurrencies. What will they do? Send the likes of the NSA to attack each and every one, even though there's three more for every one they destroy?Write a ridiculous law making "cryptocurrency" illegal, with such a vague definition of "cryptocurency" that liking something on Facebook becomes a federal crime?

Whatever they do, it won't work, and it'll be hilarious! (From a distance, anyway.) Time to stock up on popcorn!

Thanks for the help

The big picture here is the fight for control. One of the greatest fears of any government is to lose control of their currency. Image a world where the US dollar ceased to be the medium of exchange. Where a significant proportion of your economy was transacted under a currency over which you had no control and no means of taxing. Yes, a first world economy, with a third would currency.

The greatest danger to these electronic currencies is the wild speculation on their value, fragmentation of the available currencies, and they are still only used by a small minority of people.

Left alone they may well remain a minor player on the global currency market. A curiosity at best.

This kind of bill, rather than hinder, helps electronic currencies. It spreads the word about their existence and it forces them to further develop the tech to get around the bill. That tech makes it more likely that fragmentation would decrease and the value stablise. Stupid legislation forces electronic currency to evolve into something we will all use.

The powers that be in the United States are afraid of Bitcoin. The US Dollar is going to collapse and its going to do it soon - the soaring prices of BitCoin show that people are flocking to it and away from the USD. (Gold and Silver too, FWIW)

I'm actually surprised this hasn't happened sooner - BitCoin presents a real threat to the 'status quo'. However that's exactly the reason why so many people support it.

Does anyone honestly believe that governments would sit back and let something like bitcoin happen? Personally I think they would let it go until there was a good sum of money on the table, and then start to destroy confidence in it by making large amounts disappear. It wouldn't hurt to find a big bug in someone's secure socket layer handling software at the exact same time. That way it wouldn't attract too much attention and only the conspiracy nuts will suspect that key loggers are standard equipment on virtually every device on the planet now.

Bitcoin...

I don't think they should be banned (well, effectively banned by forbidding payment processors etc to deal with them) but I am leery of anyone jumping the defense of bitcoin and its institutions. From Bitcoinica to Tradehill to MtGox the survival rate of institutions that turn into being structurally important has been abysmal.

Not to mention that saying that MtGox was "an early popular Bitcoin exchange" is rather disingenuous when even when it was functionally cut off from the rest of the bitcoin and fiat ecosystem it was nominally the highest volume exchange basically up to its death. It was used as one of the main benchmarks when quoting the price of bitcoin until it halted BTC withdrawals earlier this month well after USD withdrawals had become first effectively impossible and then ultimately formally halted.

That one of the oldest central pillars of your ecosystem was was a giant with feet of sand is never good news and should not be hand-waved away with statements about it just being the culling of the weak. There are no solid guarantees that any of the remaining institutions don't have huge structural flaws which will lead to their collapse.

BTC-e, one of the largest and oldest exchanges left standing now, has had its share of operational issues in the past and is still dogged by allegations of eclectic scamming and irregular operation.

Bitinstant, the service used by almost every business accepting bitcoin, has had its share of compliance issues and its CEO is currently charged with money laundering.

Bitstamp has so far been more reliable but it has only been around for just over a year. It also does not report any financials and any assurances about its internal processes and solvency have to be taken on faith (this is the case with essentially all bitcoin exchanges and the likes). Bitstamp's registered address is 5 Jupiter House in Reading UK which is not their actual business location. It is the location of @UK PLC a company which offers mail management and company creation services, which Bitstamp presumably is taking advantage of. As an aside, I am curious whether they will file accounts with company house by the 25th of April.

Deflationary

I don't know if anyone's paying attention any more...

Where to start? Again, I'm sure we could find a stock or other investment opportunity that has dropped in value over the last month. But picking a arbitrarily (and ridiculously short) time frame in which to make this argument is just... well, stupid. It makes no sense. We could easily point to the inflation of Bitcoin over the past year and suggest that based on Mahcnin's own logic that Bitcoin is a good investment. Both arguments are equally stupid.

I'm not sure you understand the argument about the deflationary nature of Bitcoin. He's not talking about the "inflation" (increase) in value of an investment in Bitcoins, he's talking about the fact that Bitcoins tend to go up in value over time, thus it is an inherently deflationary currency.

Since there can never be any significant number of bitcoins added to the economy (there could be more generated/found/whatever it's called, but not a huge amount more), if bitcoins gain interest and usage, demand for them will go up. With a limited supply, prices go up. And when the value of a currency rises, you get deflation. A deflationary currency is not particularly useful to buy things with since you're always better off holding onto it than spending it, so it's better as an investment. I don't see this as a problem for the US economy, but it sure is a problem for bitcoin.